Economic storm in the United Kingdom: the worrying stubbornness of Liz Truss

After the spectacular fall of the pound sterling and the dramatic intervention of the Bank of England yesterday to stem the surge in the price of British debt, economists and politicians competed with metaphors to explain the serious financial crisis which is shaking Great Britain. Brittany. For Gavin Barwell, Theresa May’s former chief of staff: “Because the government is standing on the accelerator pedal, the banks are forced to stand on the brake pedal.” As for Jim O’Neil, former chief economist for Goldman Sachs, “the banks ran the printing press to bail out the government.”

At the origin of this crisis, the announcement on September 23 by the new Chancellor of the Exchequer, Kwasi Kwarteng, of the budget of the government of Liz Truss. This budget not only had the effect of an earthquake on the financial markets but it forced, in a very unusual way, the IMF to urge the Truss government to “reassess” its fiscal policy, “especially in favor of high income.”

What the markets and the IMF particularly criticize Liz Truss for is the lack of clarity and the absence of quantified objectives in her economic and fiscal plan. Indeed, hammered rather than explained, the economic policy of the new British government is based on vast tax cuts, the largest for 50 years, coupled with an increase in exceptional public spending to the tune of 100 or even 150 billion euros. , in particular to help individuals and businesses pay their energy bills. All without explanation on how these measures will be financed, apart from a spectacular worsening of the British public debt, estimated at 7% in 2023. The markets reacted immediately, a reaction aggravated by an already feverish international context.

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“Finally, a conservative economic policy!”

Faced with the scale of the financial crisis and the risk for individuals of bearing the full brunt of galloping inflation and rising mortgage rates, many Conservative MPs are asking the government to change course and method.

But according to essayist Alastair Campbell, former director of communications for Tony Blair, Liz Truss has no reason to change her course: “First, she was elected by the Conservative activists to do this kind of politics which does not only benefits the wealthy, he says. Secondly, it allows him to pretend that the country has a new government, when she is the third Conservative Prime Minister in six years and has herself participated in all of them. previous governments, and is backed by the Tory press as well as the Daily Mail which headlined this week: “Finally, a conservative economic policy!”

A course, or rather a school of thought, on which reality does not seem to weigh much. Like Brexit, the radical economic policies of Liz Truss and her childhood friend and Economics Minister Kwasi Kwarteng stem from ideology. They also exposed it together ten years ago in a pamphlet entitled Britannia Unchained (“Britain freed from its chains”). Lionel Barber, former director of Financial Timessummarizes it thus: “it is a cartoon Thatcherism, expressed in a martial way and based on shameless promises, and which is extremely risky.” Britannia Unchained indeed exposes an ultra-liberal and radical economic philosophy dating from the Reagan and Thatcher years. For its authors, it is precisely a question today of ending the economic revolution begun in the mid-1980s, by further reducing the power of the unions, by deregulating the economy and by lowering the taxes of the richest, by further privatizing higher education, by drastically increasing the retirement age (Britannia Unchained cites the age of 75) and removing many social benefits.

No change of course in sight

All these measures are supposed to guarantee exceptional economic growth for Great Britain. And if the markets do not share the optimism of Liz Truss and her chancellor, it is because they are partisan. the think tank Conservative Bruges believes that the reaction of the markets shows that the banks and the IMF are in the hands of “Europeanists”. “They are horrified at the thought of an independent, vibrant, low tax Britain,” he said on Twitter.

The change of course does not therefore seem to be on the cards. As for changing methods, Kwasi Kwarteng’s pedigree does not lend itself to optimism. This Briton of Ghanaian origin is a pure product of the English establishment. Educated in Eton and graduated from Cambridge, this intellectual bordering on two meters is not known for his modesty or his flexibility. His desire to do without the help of the OBS (Office of Budget Responsibility) in particular frightens many. Indeed, the OBS is an independent forecasting and economic analysis tool that always accompanies government decisions.

We can say that Truss and Kwarteng apply their ideas to the letter. During the summer, they had indeed announced their intention to “fight economic orthodoxy”. Had they only calculated the consequences of their promise?


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